Entergy to Divest and Merge Electric Transmission Business Into ITC Holdings

Entergy Corp. and ITC Holdings Corp. have announced that the Boards of Directors of both companies have approved a definitive agreement under which Entergy will divest and then merge its electric transmission business into ITC.

Entergy's electric transmission business consists of approximately 15,700 miles of interconnected transmission lines at voltages of 69 kV and above and associated substations across its utility service territory in the Mid-South. Following the completion of the transaction, ITC will become one of the largest electric transmission companies in the United States, with over 30,000 miles of transmission lines, spanning from the Great Lakes to the Gulf Coast.

Transaction Details and Approvals

The terms of the transaction agreements call for Entergy to divest its electric transmission business to a newly-formed entity, Mid South TransCo LLC, and distribute this newly formed entity to its shareholders in the form of a tax-free spin-off. Transco will then merge with and into a newly created merger subsidiary of ITC in an all-stock, Reverse Morris Trust transaction. Prior to the merger, ITC expects to effectuate a $700 million recapitalization, currently anticipated to take the form of a one-time special dividend to its shareholders. The merger will result in shareholders of Entergy receiving 50.1 percent of the shares of pro forma ITC in exchange for their shares of Transco, with existing shareholders of ITC owning the remaining 49.9 percent of the combined company. The transaction is expected to be immediately value accretive to ITC shareholders. Rate base for pro forma ITC is projected to be approximately $7.1 billion by year-end 2013.

Entergy expects to receive gross cash proceeds of $1.775 billion from indebtedness that will be incurred in connection with the transaction, and this indebtedness will be assumed by ITC at the close of the merger. In addition, ITC anticipates issuing approximately $700 million of unsecured debt at the holding company. The combination is expected to enhance the overall credit quality for pro forma ITC due to its increased size, scale and financial resources and has been structured to preserve ITC's existing strong credit metrics. Entergy expects to use most of the cash proceeds to retire debt associated with the transmission business at its utility operating companies and the balance for debt reduction at the parent, Entergy. The merger is expected to qualify for tax-free treatment for U.S. federal income tax purposes for both companies and Entergy's shareholders.

Completion of the transaction is expected in 2013 subject to the satisfaction of certain closing conditions, including the necessary approvals of Entergy's retail regulators, the Federal Energy Regulatory Commission and ITC shareholders.